Harvard i-lab | Startup Secrets: Value Proposition

[Music] hi I'm Michael Scott we're here at the iLab tonight in the startup secret series to talk about value propositions and one of the challenges of starting a company is to figure out whether you've got an idea that's really worth building a business around so we talked about how to define a value proposition how to evaluate it and then how to build on it and I think what you'll enjoy most about this series is that we go from qualitative to quantitative to really assess whether you've got something that's going to make it for those of you who haven't attended any of these sessions before the big premise behind this was something extremely simple which is unfortunately when I started life as a young entrepreneur in my teens I didn't have anybody telling me all the things that I was about to screw up and I screwed a lot of things up and I've got a lot of scar tissue and I wish that somebody had been able to say to me hey here are some of the things you should think about before you start plowing into building your product and taking it to market and figuring out how you're gonna sell it and so forth so this series is really about trying to give you some unfair competitive advantage as I describe it some unfair advantage in having that advice before you crash into the wall and figure out all the turns that you could have avoided so before I go any further let me introduce some of the people who are going to be talking to you this evening we've got folks from appear in here we've got a key burn here David McFarlane our CEO we've got discuss in the form of Rick Phillips so discusses a and a an investment that's actually based on the west coast so Rick is the partner behind that investment he's going to bring that case study to life and then alok has very kindly brought a not for profit example diagnostics for all into the mix because a lot of people last session told me that they'd like to hear about the not-for-profit world and how would we relate it to that so thanks for that feedback and thanks for a luck for being so responsive my partner Carmichael also helped out there and last but not least in fact really sort of the feature for this evening is a company that's now number two in the Inc 500 fastest growing software companies and a great example of a local company you test so Doron if you wouldn't mind standing up just to introduce yourself and your team briefly to one of the CEO and Founder before you sold to members of - me - it's a city oh nice to be here let's make sure we've given those up so you guys about them great well welcome ok so our agenda for tonight is a really simple one we want to help you define a value prop we also want you to understand how you would evaluate it and then get into at the end some examples on how you build them but throughout this in order to keep it live I'm actually going to bring in some of the case studies from the various different companies that you've got here this evening so let's jump in and start right where you hopefully will end up in other words with what should a value proposition look like and you might say well why am i starting at the end and I think it's because you need to know where you're headed in this case otherwise this session is going to be tough so the typical form of value prop is to define what you do uniquely well for whoo that's a simple way of putting it and this is going to be our template this evening we're going to talk about for what target customers who are dissatisfied with what current solution or alternative that's out there your product is providing some differentiated its problem solving capability that unlike everything else out there is doing something unique or different don't worry about taking this template down I'll just tell you right now you can get all of the slides up at MJC allcom so they're all up there all the templates in everything else and you can download this so don't feel like you have to capture this but I'm putting this up here so you know what we're headed towards this is what the typical form of a value proposition looks like and you might say well why does it look like this but as you come through the course of this evening I think we've got a pretty good sense of it so I'm going to start off by making an example of one of the companies that we have this evening and that's appear in and Brian if if you want to jump in at any point please do if I get this wrong but here's what was the background to appear in how many of you have mobile phones question is who doesn't actually now I think these days well now if any of you carry those into work you probably just expect them to work with your email at work and your calendars at work and so forth however you probably carry in there also photos and you know personal information etc that you don't want to get confused with a corporate information turns out that's a big problem for the Fortune 1000 and for large enterprises around the world and so a peer in tackled that and that was the first part of their focus was to go off to mobile enterprises and they found that people who were trying to deliver apps to their employees were struggling because they couldn't issue them with BlackBerry's anymore people who would walk in with iPhones or iPads or Android devices and they wanted to use the apps on those devices and so what they did was they built this thing called an enterprise apps services environment ease for short cute name that provided a way for users to securely access the apps and information that were in the enterprise but without losing all their personal stuff or the device being taken over by the enterprise and at the end of the day they figured out that the way they needed to do this was different to the way people had done in the past and there was a way that was done in the past called mobile device management where basically the enterprise would take every device they'd grab control of it they'd lock it down they had the ability to wipe it if anything went wrong but the trouble is that meant wiping everything so you would lose your own personal information as well and also it was done in a very typical way which is by putting it an expensive piece of hardware or or capabilities behind the firewall in the enterprise and that was a difficult thing to implement so what appearin did was unlike that of that approach they built this in the cloud and they made it really simple for people to just walk in without having to do anything special just effectively register once and then immediately get access to the corporate information applications so did I miss anything Brian just make it add two minutes of color to it lest you think the company we found it was that smart that he said I'm gonna do this when he started a company three years ago he actually kind of stumbled on to us so a period is actually kind of a company with two different lives when it was started back three years ago if you put the founder who's not here tonight under truth to him he'd probably say he was building a lifestyle company he was gonna build apps for enterprises and in and kind of do that and make a lot of money and have a lot of fun doing him but the real challenge became when he zapped these companies were spending hundreds of thousands of dollars on these apps they were saying to themselves well we don't want to put that in the iTunes App Store what other way can we get these to our employees which really forced the company to design what what Michael talked about the the enterprise app services environment which is what the company is selling today so since I've been with a company about a year and a half ago we would successfully made the transition from the app development company to a company that's actually selling subscription service that Michaels talking about here but I think the point there is is that it's not necessarily at day one you don't you don't necessarily have that value prop in your mind that we kind of evolved into it and that's where that's what the business is doing today great and I'm gonna ask you for more color as we go through this that's just a brief introduction to appearance thank you Brian by the way unless you think Brian is our sales guy or our marketing guy he's actually aisle CFO so that's what I was about to say that's the wonderful thing about startups is that everybody's a sales guy so one of the things that's interesting about the appearing example is exactly what Brian said is it's probably a good case study in that this wasn't where the company started they evolved from actually meeting a very different customer need which was just to build the apps themselves to ultimately meeting the need of how do you deploy and manage those apps and I think a lot of you will probably go through that journey so as we go into this I'm now going to try to help you figure out how much you take that journey how much you do it effectively and how much you define your value prop as tightly as possible as early as possible and then iterate it and in the real world by the way really what happens is you iterate a lot to get that the value pop more refined so back to where mighty you start well most people think in this you know diagram that the obvious place to start is with the ideas they're the real challenge is that ideas are exactly as I've depicted them here they're free-floating I mean I unfortunately you know ideas are too a penny in our business I mean there are so many great ideas that never see the light of day and one of the reasons they never see the light of the day is because they're really not oriented towards solving some fundamental problem so I would argue that the worst thing to do is to get carried away with an idea before you define what problem it is you're going to solve and so I would argue for any one of you taking your idea and parking it until you can think about what's the problem space in which this idea really applies and then get to work on what we're going to do now which is talking about the development of the problem so for those of you who've seen me talk before you'll know that I'm a self-professed horrible student and so the way I learned was by creating mnemonics for everything and so you'll find things like in this case for use it's not to say there are only four ways to describe problems but it's my way of getting these things into a simple form for you to remember so the four years are I look for problems that are unworkable that are unavoidable that are urgent and that are underserved and we'll take those in a bit more detail but if you can start to think about your idea around that framework I think it'll really help to hone what it is you're gonna do uniquely well so let's start with unworkable this is the most fun one if something's broken it needs fixing and so the best kinds of problems that you can find our broken business problems something like a broken business process so can anybody describe to me an experience they've been having as a consumer which you feel is broken you're getting a service from a customer company that is broken or that is not great anybody give me an example of one the new Apple map it's a great example right that is clearly broken and it's not working it and how much pain is that causing Apple right now a lot who's benefiting Bing map quite a lot of people are benefitting by fixing that problem and probably apples losing customers they're losing revenue etc and the beauty of these examples is I bet you can all think of them you know there's probably experiences in your everyday life in many regards that you're not happy with this is the genesis of a potential opportunity when you find something like that now obviously if it's a one-off thing it's not as interesting as if you think it's being repeated but I'm gonna give you a real world example now of one of our companies that actually has solved this problem for AT&T so turned out I'm sure you'll remember this for those of you who bought iPhones in the early days the onboarding process for the iPhone was so badly broken that people weren't activating their phones for days in some instances and they were losing customers and there was a tremendous challenge about it it turned out the back end of that was a whole series of workflows to provision that the phone through the carrier and get the billing worked out through Apple and that was a workflow and it was a broken business process and one of our company is called active endpoints actually went in and solved that problem for AT&T and got paid millions of dollars for it and that's what I'm saying is the kind of opportunity should be looking for obviously if you're looking for consumer examples I'll bring those up later but they even then you'll find that there are similar opportunities in if you can sense them that's a great starting point that's what I mean by unworkable now the best way to measure it is if the consequence is genuinely costly or painful so the examples we've been giving here you you end up having your customers spending money they don't want if they really get pissed off you lose them so losing customers or losing revenue is always the best example of something that's really broken if it's just marginal like somewhere somebody's sort of dissatisfied a bit they'll live with it you probably haven't really hit on a very painful or difficult problem and and that's the judgment I would try to use that ultimately the the phrase I have at the bottom of the slide is the one I like the best which is could you identify somebody who will get fired if this business problem doesn't get fixed because you know why that's good who will you go sell to that person I mean they are going to become your best champion because their job is on the line unless they fix this so if you can identify that person early on and work with them not only will they probably champion you but they'll also educate you as to how to fix the problem and they'll obviously shine a light on where all the pain is so it's just an obvious set of things to think through for this first way of defining a problem okay that's the first you any questions on that before I move on okay the second one is unavoidable this is also one of my favorite ones because there are a lot of things that unfortunately you can't avoid in life death and taxes would be two good examples unfortunately we just have to live with them taxes actually is a part of an opportunity because as a result of us all having to pay taxes we all have to account for things and to be in business you've got to account for all your activities and be able to close the books and obviously comply with basic audit standards so anybody in the accounting software business wasn't tackling a problem that was optional they were tackling a problem that was necessary and it's no accident that the first software companies that were really successful we're in the accounting business because people had to do basic things like meet payroll and comply with audits and so forth well it turns out regulations are constantly evolving whether its hipper or it's Basel two in financial services or healthcare you could probably find plenty of these examples or if you're in the drug discovery business complying with FDA process to go through the process of getting your drugs obviously approved that's a real process that people have to comply with if you can find smart ways to do that that help people better collaboration over the internet for example in the process or whatever it might be you know you've got a real problem that because it's unavoidable people can't get around it they can't just skip FDA approval and take a drug to market it doesn't work that way so we look for those things and when great entrepreneurs come to us with opportunities that define new if you like solutions to these we almost invariably see those turn into great companies an example from our portfolio that might not be so obvious as a company called R eval re VL if you want to looked up Reeve al you'd find they do something that was being done in the fortune 5,000 on spreadsheets and it was accounting for in this case derivatives what you might say we don't need together tonight except to say it's an instrument that people use to defer risk in their business and of course it turns out if you start taking instruments like derivatives and using them you need to account for them because they cost you money and it turned out they were complex actually derivatives a part of what brought the first financial crisis on because people weren't accounting for the properly they are that complex so there's a complex problem it had a real need for accounting and it turns out it was also regulated so it was like the perfect mix of issues and sure enough this company has gone you know very quickly from being a little startup to being a company that is now in registration to go public and why because it's unavoidable problem now the consequences for them which are really fun to share with you our very real if a company doesn't manage their derivatives and doesn't account for them then example in that case would be ge ge had a 340 million dollar adjustment in their valuation as a result of not doing the right accounting for their derivatives so they could measure in hundreds of millions of dollars the impact to some of their customers if they weren't in place that's what you're looking for you're looking for all those kinds of signals and if you can find them in those early days of investigating a problem you're probably on to something good so any questions on unavoidable anybody else think of any other unavoidable problems that we have to deal with nope yep getting old yeah aging is very real what does that open up as opportunities yes yep yep yeah I think the aging population baby boomers etc huge huge opportunities as a result of that you know I said there are two unavoidable things death and taxes well on the way to death is aging and has a lot of challenges with it speaking personally yeah lots of challenges okay so thank you very much great example on to the next you this one is easy to skip over but important for startups so why is urgency important for a start-up can anybody tell me why for a start-up in particular it's important that you find an urgent need exactly I mean thank you because what happens in a start-up is you only have one way you're gonna go out of business you ran out of cash and so unless you get revenue in fast at some point you're out of business so you have an urgency so if you have that urgency in your customer doesn't you're in trouble and the biggest thing I find with startups is that they have you know a great vision potentially for what might be in the future if these three things happen well guess what if they're in your control that those three things happen that's great but if they're not an example might be you're hoping for some change in you know the platform or the environment or whatever it might be it might never play out in a time scale that actually enables you to build a business so urgency is extremely important and what I would say here is that this is not urgent see in isolation it's relative to other needs that's the thing people miss so what I mean by that is if you walk into a company with a proposition and you say look we've got the best way of solving this particular pain point for you that may be true and they may agree with you and say yep you're right that's the best thing I've ever seen for this problem but if it's number 42 on the list do you think you're gonna get their attention no and honestly that's usually the challenge for start-up there's one other reason why it's important for a startup as a large company with a brand and with perhaps a relationship with an existing customer you're going to have their attention from that existing relationship that allows you to if you like influence them as a start-up you're the exact opposite you are a pure risk to them so even taking time to listen to your proposition is spending resource that they wouldn't otherwise intend to do so you've actually got to have something I would argue that's in the top three of their priorities to get their attention and if you hit on that then they'll probably make time to listen to your proposition and then obviously if it is the best solution they'll start paying attention to it so just pay attention to this when you're thinking about how to define your problem the last one actually needs a little bit of thought and that is you know is this problem underserved so let's talk about this in terms of dollars rather than marketplaces do you think that as a start-up when you walk into a company and you ask for them to buy into your product that they have budget for you who thinks they do good they never do guess what you weren't even on the horizon probably when they did their budget a year before the reality is most large enterprises for example budget twelve months in advance and they start planning three months before that so unless you were around 15 months before and had then thinking about you when you walk in the door and you start to try to get them to pay attention to you you're trying to take budget away from something else so it's back to that prioritization and what you really want to do therefore is find a way to compete in what I call a zero-sum game which means you're going to be taking money from something else and therefore you're going to have to be competing for water finite resources in companies dollars time people and attention and just as I said earlier attention alone for a start-up can be a big deal so for all of those reasons what you want to look for is an opportunity that is underserved ie there aren't ten other people trying to meet that need if there are you're going to compete for those same resources with those ten other people you want to try and find something that we'll talk about later as a white space now at this point you'll probably notice that a lot of my talk here has been a very business-to-business sense and that's because that's my experience but what about consumers do you think this applies to consumers or do you think everything I've said so far as is b2b anybody tell me why this might apply to consumers go ahead that's absolutely true but do can anybody else tell me that consumers have any of these traits - or do we all have infinite dollars I mean let's let's face it we we have a paycheck and a net after taxes ought to spend on whatever it is we live on you know our utilities and everything else are gonna be in the first things we spend money on that's the subsistence we have where are you competing for dollars that consumer is important are you competing for nice to have things like their entertainment or are you competing for must have things like their subsistence think about that for a second it actually applies exactly to consumers so I do think it's helpful to have a slightly different model there for consumers and for those of you who've done any of these studies I mean there's many different models there's now completely different ones the one I've put up here but it's a good framework this is the Myers Brigg framework social security physical economic recognition responsibility etc these are all basic human needs it turns out most of us have them in some form or another they may be different at different times of our life but if you tap into these needs you will probably be addressing again a more definable problem and therefore a more addressable problem and just to pick one of them like social think about this for a second do people have the need to connect with others do you ever need to communicate how many of you said you had cell phones I guess we all need to communicate that's a need we have I mean we don't like to exist in isolation so if you think about the problem you're solving in these terms and you work through it you'll find actually that even in the consumer sense there are some very real needs there what the one that always amuses me that actually is given rise to whole industries is dating I mean you should avoid it we all have a need to connect and date and find our partner you know what however that evolves that's actually given rise to some pretty fundamentally huge industries I would argue that the same thing caused Facebook to take off in college originally is what caused it to spread as a network for people to find and meet and connect and group and date and whatever else they wanted to do so I think every consumer play also can be identified in the same way now the tougher thing in the consumer world is to figure out whether that need is as burning and obvious as we've just been talking about so can anybody think of a need that is not obvious but when somebody actually met it you were thrilled anybody got an example of something that hey you bought a product you didn't know you needed but wow now you've got it you love it iPad did you define the need for an iPad before you had one but wouldn't you take if I took it away now would you be happy or sad and why what do you what do you like about it now there you go now that is a fantastic example of what we're about to talk about an unmet need that actually was probably not well it wasn't obviously you didn't go out looking for an iPad five years ago right you just but now that you've got one you're very happy with it so I'm gonna help you with that framework - this is how to qualify consumer needs it's in what I call black and white so the consumer need often is latent meaning it's it's sitting there it's not on the surface but when you tap it and you finally give somebody an iPad and they can organize their life on it and do their email on it as well as access the net and shop on it and watch movies on it they suddenly realize wow I love this this is great I really want to continue to use this device that's a late need that when you tap into it becomes very real other kinds of needs that come up are aspirational so how many how many people here spend time online looking for fashionable either clothes or things for their home be honest one two three okay what's not counting lots of you is that a real leader is that an aspirational need [Music] aspire to have these big great great answer and there's no right answer here we all aspire to have something that either represents us or makes us feel appropriately dressed or you know furnished or whatever it might be those are aspirational needs they're very real I mean last time I looked the fashion business was not down as much as it should be if you looked at the relative economic climate and that's because people continue to spend money on their aspirational needs these are very real needs people aspire to for example fit within certain domains and that causes them to say okay well you know if I want to work in this way or play in this way I'm gonna you know buy these things and and you know enjoy my life by you know dressing this way so these are real needs they're just different and this is how consumer needs come up now the last two are the ones that I typically look for because if you can find what I call blatant and critical needs it's really not a question of whether you obviously will or won't buy something and a blatant critical need is a lot different than a latent aspirational need it's not to say that one won't get bounced completely out versus the other but it just helps so certainly in business we look for blatant critical needs now the white piece is what I was talking about earlier what we really want to do is find a white space whether those blatant critical needs are underserved and what we're saying there is can you find a white space where there's an open area of opportunity where somebody is not identified a way to solve that latent critical need and if you can you're really on to something you're now in a place where I can tell you we're starting to pay tremendous attention as investors and we're I guess that you're going to get serious attention from potential customers to the other two pieces here are can you find it in a way that is easy for you to capture and then defend for the long time and will you be able to define a way of doing it uniquely so we'll move on to that but because we've had a discussion at this point around consumers I wanted to bring up Rick to talk a little bit about discuss and this is an investment he made which is very much tapping a consumer need for interacting so Rick come on up and tell us a little bit if you want to grab a microphone about what does discuss do and why is it tapping a need discuss is the largest common platform on the internet how many people here read blog posts and how many people here have used discus to comment on something great so when you finish an article on any of these publications that you see here from wire to CNN to Time magazine you know almost 2 million sites and in about 75% of the of the articles on the web they'll have discussed at the bottom sometimes you don't even know you're using this cause but but if you've got the latest version embedded you'll see a real-time commenting widget like the one that you've got here where you know you've got a discussion and you can basically create a community around the site so it's a pretty large urge community it just before you go on so what need does that meet for us I mean why do people comment what need are we meeting their letters to the editor it's lettuce Lee edit but communicate yeah we're trying to voice our opinion share exactly this is a funny thing I mean you know if you look back at it there's always been thanks Rick for giving me the prompt led us to the editor now we moved online people still have that need they just needed it at a different forum yes and now this just gives you a real-time commenting capability and it allows you to build a community around a website so that you can have interaction just for the folks that wrote about it but also though those folks that are reading about it which is which is unique in you know community Foster's engagement and it fosters more time on the site which means that our advertising dollars in a number of other other things like that it turns out there was also a latent need in there as well and that is that people want to discover new content and so discuss you might want to just share how that is tapping into that you know they've now have 900 million uniques a month so almost two million sites too many sites that use this the discovery part which is the way that this company monetizes their there are six billion pages of traffic is very interesting because it allows once you read the comments section it allows you to go to other articles that are similar and they know if you're at the preview reading review of a digital camera and then you went to Engadget to sue something else and then you were at CNN once you're at CNN you know they've cookie you're cooking 900 million people over a very broad network so they understand you know the what people are interested in yep means they can provide relevant content that's very unique and so it allows you to discover new interesting stuff that other folks would find interesting and said thank you Rick so what's great about the discuss ecosystem is that actually there are multiple people benefiting from it so the users are benefiting because they're getting this they're scratching the edge of of being able to communicate and share the publishers are benefiting from it because they're actually getting better engagement and they're able to therefore you know attract better advertisers and therefore grow the revenue and the advertisers are getting benefit from it because they're getting broader reach so everybody's winning it's a multi-faceted value proposition which they're hard to find by the way but if you can find them are great so Rick let's just put it in the template that we were putting up front so who's this for it's really for for publishers and and for the bloggers and in the readers and who is the primary audience like if you had to sell to just one of those audiences which which would be the one you'd go off to first well the product I know we have it on the slide as publishers but I think the product that the team would say that discusses for the users the guy I mean we could do a lot of thing or Daniel and Jason the founders could do a lot of things that wouldn't be user centric but they are 100% user centric and that's how they've been able to grow to the large install base and you bring up a great point here by the way I would say that almost any consumer product that first of all satisfies the user has a chance of succeeding if by contrast they'd said okay we're just gonna make this entirely publisher friendly but the users didn't have a good experience of course it's not going to take off they wouldn't have built the network so I think it's totally appropriate you said that now what is it that they user cares about what do they care about that's that's driving this need we've covered it but well they care about community we discussed you can actually understand who are the top commenters you can get profiles on the commenters it's real-time feedback you could have a conversation and you know what the other person is thinking while while they're typing about about something and it's it's basically better engagement on that site and I would argue the key word in this value prop here is loyal because the challenge on the Internet is you're one click away from losing your customer like that and so how do you get them coming back well obviously if they posted a comment now they're engaged and they're gonna want to see what does that what does somebody else think about that or you know you very rarely find people just leave a comment and walk away and have and forget about it so it's it's a part of the engagement it helps the publishers build their loyalty and again that's very important for what builds probably as a business model so what do they define the product as so they really are a network there are many comments commenting systems on the on the web they have about seventy five percent market share but there really are a network where as all the folks you know if you've got guys didn't have a SAS business and they'll sell to a publisher kind of a white label solution you've got other folks that that offer it for free but it's really all the engagement goes back to another social network for example the case of Facebook which also has a commenting system and discuss is really a network but it's a network built around the publisher sites so you never have to leave the publisher site to engage and learn more about the users that are commenting and things like that it's so it's really publisher centric network and and unlike other players what's its particular distinction I mean how are they standing out because other people could have potentially they yeah they actually are more publisher centric in more user centric than the other networks that are essentially trying to build their own their own site architecture I mean one way of putting this would be imagine if your Conde Nast you could have easily built this yourself because it's not that technically difficult I mean I'm sure Dan would say it's extremely difficult that's scaled but to build it for your site's however you'd be limited at that point to just people who commented on Conde Nast that's not exactly interesting the whole cross-pollination of the comments across the many different forms of media that people read is what really gets interesting and of course that's why I think they've ended up with a very distinctive content discovery part especially yeah very good great thank you very much Rick any questions for Rick on that before we lose it so people starting to see how this framework now works yeah going back to the time and you were you were in the design phase of your product coming up with a value proposition this conversation you've had about like social media just for the sake of social media because we want a community experience online but creating a sort of like another dimension and into that social existence is adding value like in this case conversation about the articles and things like that so my question is like how did you foresee that at a time to take this social media online concept into this his side so I'm not the founder of the discuss I'm a board member and discussing so it's really Daniel that first saw it and Jason ever saw it but you know they they really believed that you know best in breed on the web would would not be done vertically integrated by by sides kind of on a cost structure basis there's a lot of open-source little commenting widget systems but this is something that this is the largest Python app on the entire web 900 million people use it every month so 300 million people comment actively every day so there's a lot of people using this this app it's socially distributed and it's it's a pretty large complex it looks simple but it's so you've I think there bed is correct if you look at companies like bizarre voice and all sorts of other folks there's embeds that are besting best-in-class with a lot more technology that go on larger you know companies like Outbrain I mean there's a lot of players that have that have grown their their online businesses that way and they they started in no seven when the web was younger and and it allowed publishers which are usually cash-strapped a way to put much better technology on their sites and they didn't charge better experience initially it was free so they got a large network and and today they have a discovery option that actually makes money for publishers so instead in whereas the SAS vendors will go out and you know kind of charge to do something more premium they actually have a revenue generating element they also have a premium kind of super high-end system that's used by people like CNN etc so they have both options but so I would say a couple of things that you can generalize out of this Thank You regulator there are many cases where an entrepreneur has a vision for something like this but they start with for example a simple product that's free just like Daniel and his team did but what they're they're working towards is the vision that they clearly had which is they're gonna end up with the Best of Breed solution and it's true on many occasions that if you can find a problem as I was talking about earlier that's generalizable like this is a generalizable problem for any Content publisher there's probably an interest in commenting then you're probably going to be able to get it monetized at scale at some point and so the real trick here was that they found a way to get it to market there was friction free you know made it free really easy as opposed to you building itself you just put a tag in your website and boom you're done so really easy really you know quick free so you know that simple and then once it gets scale you can do interesting things with it like obviously use the community to get recommendations find other ways to monetize it etc and it's fair to say that you know I don't have to go back to Rick for this we're still early days in monetizing that property but the fact that it's now one of the largest if not the largest app on the web is a great opportunity so these things do evolve and that's part of what I think we want to bring out in these case studies this this dust doesn't just happen overnight which is why we're trying to get you to think about this okay I don't just move on for time but every time I pause I do want to make sure I haven't lost anybody so we okay anybody not following so far okay good so let me summarize on this section though the answer to every value prop is not that you're going to find for use obviously some value props will have you know only one of these things but the more that it's unworkable unavoidable urgent and underserved the more likely it is to rise the top and get attention and as I said depending on whether it's consumer or it's b2b you might want to use the framework of whether it's blatant blatant aspirational critical to figure out whether you're really attacking something that again is going to get people's attention and whether there's a white space associated with it so hopefully that's a simple framework for you to use when you're defining a problem so now when you go back to all those ideas instead of them just being free-floating you can think about okay just this apply to the problem I found and it starts to become a lot easier to filter your ideas to start to focus in on them and that's why we always say when entrepreneurs come up with an idea that sounds great but what problem you solving and the more you can start with the problem and define the problem space the more likely your ideas are to gel into something of a blatant critical for you need so hopefully that helps you get to that stage so at this point what we've done is to at least define the problem and we know you know some ideas hopefully that you have to go address it and it's it's time to define the solution and there are lots of questions that people always have around the solution know who what where when why would all be the classic ones the thing that I would always try to do is to get you focusing very quickly on the right way to think about your solution so one way to do that is to tell you what's the wrong way the wrong way is faster better cheaper there's a good chance that if your idea is just faster better cheaper it's incremental and what's wrong with it being incremental will it be easy for people to catch yep very good so since I know some of the business you're in tell me about the search world what what faster better cheaper would mean very good so the problem with faster better cheaper is that it's a very definable way to beat somebody so you're basically laying out the roadmap for somebody to say look here are the axes on which you can come and beat me you could be faster me you could be better than me you could be cheaper than me what we're looking for is something that's a complete breakthrough that changes the game changes the rules that you know just literally moves the discussion from say 2d to 3d you know it's just a different perspective on the world so using that exact same mnemonic technique there are in fact 3ds I look for when you're trying to come up with a breakthrough opportunity number one is it really a discontinuous innovation in other words is the way in which somebody's doing something completely different the way it's been done before it's not linear it didn't happen you know one step at a time somebody suddenly made a breakthrough and it changed the game so you haven't heard yet from guests that you test but in my opinion they came up with a discontinuous innovation around how to do testing as the name implies they do testing so Doron could you just give us an example of what's discontinuous about the way you do testing sure so before we started you know the way you used to do testing is basically hire people in-house build a huge lab or go and you know use some kind of an outsourced testing provider you know in India in China somewhere offshore and what we came with is really a model where we built a global community of software testing professionals today we have 70,000 professional testers from 190 countries across the globe and there's a one that are actually testing software for the actual customers and that's really what is disruptive around you know this specific model one other thing that we also did is we actually also disrupted the business model that basically means that we took it from a paper our business model where we put people would pay per hour to actually paying a fixed monthly fee so we actually took it to a complete sass type of a business model thank you so that's a great example and you're gonna hear more from Tyrone later on his point was look the way people have done testing before is in a very fixed cost way with fixed resources but by crowdsourcing it and also as you'll hear later on doing it in a way that meets customer needs better it's completely different way to approach the testing market that's a discontinuous innovation the last thing you already had a great example of I find very few entrepreneurs focus on and that is finding a disruptive business model well 20 years ago this wouldn't have even been on this slide people didn't think about business models as being disruptive in fact there really weren't very many business models you know you basically sold things and got paid for them and we didn't have disruptive things like the Internet to disintermediate people but the world has moved on a lot and almost everything can be dissonant intermediated by the internet and almost everything can be digitized and because of that you've got tremendously varied opportunities to come up with new business models that are highly disruptive and in many instances they're hugely defensible so if you were Microsoft back 10 years ago I just haven't been meeting with some of their executives about four hours ago you weren't worried at all about your business because you had a network of developers who were building apps for your platform that was absolutely ubiquitous and everybody loved the fact that their PC booted up and they could run office and that was you know all Microsoft from top to bottom other than Intel I guess so and that was known as the Wintel monopoly it was a wonderful place to be unfortunately when open-source came along and people gave software it long away for free you had a real challenge we're still Google came out with a business model that said actually we don't value software we're going to give it away for free what we value is users and search and when we get those users we're actually gonna be able to sell advertising to them completely disrupted Microsoft's model and if there's a reason why Microsoft stock has been a dial turn for the last few years it's nothing to do with that technology it was to do with that business model disruption so those are very very powerful things for you to think about how you might make a breakthrough and I'm not saying it should be only that in fact the ideal is when you do all three of these things that's why I say remember 3ds now at this point you might be saying oh geez this high demand on me to come up with you know all these unworkable unavoidable underserved urgent needs and come up with disruptive business models that's true the more there is then the more this startup secret is true you're gonna pick a fight pick a big fight why because guess what in many instances it's just as much work to go after a small opportunity as it is a big one so if you've done something really disruptive go after a big market with it and I would almost invariably encourage you to find a problem that's big because big problems generally offer big opportunities in fact our firm focuses on what we call game changes where we look for particularly hard problems to solve because that generally means defensible IP and obviously great value to customers when you do solve it and therefore potentials for really interesting business models and growth in a significant business so pick a big fight would be my one take away from this because of all the work that you've just done to get your problem really well defined and build a great solution is true then you might as well capitalize on it in a really large marketplace okay well we've got through the piece that I think is actually the hardest which is you know how do you go about taking an initial thought or an idea and defining a value problem the the next thing that I'm going to encourage you to do is evaluate it so oftentimes people will say to me well you know I've got this great idea I've defined my value prop etcetera am I ready for funding no is the answer you're ready for funding when you've actually gone and evaluated it and you've assessed whether when somebody actually takes note of your value proposition they're going to pay for it so how do you evaluate that there are two fundamental ways the first is a qualitative evaluation and this is an easy one to put on paper and a harder one to prove out but I'd simplify I simplified and say you should be able to describe the before and the after state of your value proposition so before you tests way of doing business there were a finite number of testers who could do what a Doran's company does and people would hire them directly and he's gonna talk about this little bit later on after he could crowdsource from anywhere in the world and he could get a variety of skills engaged that's an example of what I'm looking for here David can you give me an example of the before and after with a key bin' can you give me an example of a customer who was struggling using a database before you and after you what their benefit was so one example at user there's a local dating company called our online buddies and like most dating companies that well I suppose you get the idea what are they what the dating application does but fundamentally you are searching through lots and lots of data trying to find people on real in real time who fit a certain profile and that actually can take a very very long time in a database in fact the more kind of criteria you want to search on the longer it would take and time is a killer in the world of database so they were trying to react the whole application to do that they literally had to rewrite everything it costs about two hundred fifty thousand dollars every time they would make one of these changes every year to react attacked it what a Kievan does is provide a solution as Michael described that basically runs those kinds of queries incredibly fast hundreds of times faster but we do it in a way that's not disruptive so we just plug into an existing architecture and you redirect the query to a key burn and we'll run those a hundred times faster so you're literally bringing this huge amount of relief to the customer without them having to re architect or redesign or go through any of the pain that they went through traditionally thank you David so I'm gonna now describe it in the two words that I want to contrast on this if you've got your before and after statement really clean the before will be acute pain and the after will be absolute joy so I asked David to give me this dating exam because I think it's at least a little fun you know the acute pain of being online trying to search for somebody who's close to you in Geographic terms and he also has the same interests as you and that you also think might be a fit in terms of some of the other activities that you want to partake in it's very real and if you're sitting there for hours and you're sitting there thinking wow this thing is coming back with nobody how good does that feel not great right if it comes back in nanoseconds with ten people how joyful is that gonna feel you get my point there are lots of examples like this which you can bring to life by just putting the before and after statement in this way and honestly that picture that you're painting there is what you're going to want your customer to experience from your solution so this is what I would describe as the qualitative evaluation and the real test for you is have you got something that's nice to have ie it's like a vitamin you'd love to take vitamins that it's useful but if you skip one for a day it's not a problem or have you got something that's penicillin which if you don't take it you're going to end up you know in a deadly oil situation and I mean there's lots of ways people talk about this but I'm trying to make the point here that your solution is much better or much more likely to succeed if it's penicillin and then if it's a bitumen in other words if it's meeting a real painful need rather than just a nice to have so this is a great point to give you test the chance to talk a little bit about their value proposition so using the same framework I'm gonna ask Doron and Matt and Fumi here to take the mic for a second and talk a little bit about for what what is that that you test does so first of all is just at a high level who are you serving as your customers so we're serving companies that have public facing web and mobile apps by the way I would not treat this as a good example I think that typically startups would do well to focus a lot more than that on startups or on SMBs or on a specific industry it so happens that our solution solves a problem that isn't governed by a certain segment of the market a certain vertical within the market over the course of a lot of tears and a lot of sweat equity we've learned that it's it's really about if they have public-facing web and mobile properties so you make great point that by the way so one of the workshops in go to market will talk about exactly what Matt just encapsulated which is you want as narrower first segment to pick off and it turns out that you've been through a few iterations before you landed at this one we have indeed okay we'll leave the blood and sweat appears by the way when we did start focus or was on startup so we basically said you know we know it's a broad solution that fits everybody but we actually do want to start by focusing on stopping use that as a way to kind of learn and see whereas the fifties and kind of evolved over time so how long did it take you just as a matter interest to figure out who to focus on Duran mentioned we were really focused on startups in the software vertical we weren't talking to retail or media or gaming companies it was you know it was a round be round type companies who were willing to put up with with the of dealing with another startup and and I would say we were really really tightly focused on that partially out of discipline and partially out of necessity that's who had the screaming pain point back in 2008 so what was that create screaming pain point what were they unhappy with it's an interesting evolution because I would echo what a periodic speery ins this was not our value proposition in two thousand eight or nine it's not what the market knew it needed and it's not anything we had identified Duron mentioned it earlier it was it was flexible testing so that you could go from three testers to 30 to 300 and back down to three in the matter of a week and so it really was around the efficiency in the fluidity of testing okay and then what was it that was our innovation well what we discovered actually over time and this is only by peeling the onion with customers and asking them continually why do you keep giving us money why do you keep giving us money why do you keep giving us money and not accepting any of their trite answers like oh well you know Fumi is great and we'd say yeah boom he's not that great and not accepting that that we discovered that the real value proposition the real value that they saw in us that they couldn't see in any of the other 5,000 testing companies on the planet was that the testing that we do is in the wild it's outside the lab it's closer to where their users work and live and play that was a breakthrough for us and I would love to say that that was in the business plan or I walked in the first day and said oh you've got it all wrong and I know what you should be doing it was from talking to users and not accepting their first three answers because they'll just be polite to you so that was the breakthrough that led us to in the wild testing great and since I think Fumi is great maybe Fumi you could answer so why is this different to outsource testing what that we have that's unique so part of it is the elasticity part of it is that without source testing you do you can't change the size you can't get a team working very quickly and then be able to move on to some of their projects also the other is that dumb in in the wild testing is just not possible without source many of them say it's a it's crowd-sourced or it's on demand but the reality is that they're not real users they're there they're usually in a in an isolated location and it's not it doesn't get the benefit of real users being geographically distributed for example which our customers want when they're testing their their mobile apps that work in in real life that's great I mean you will know this I mean you you get an app from the App Store and you download it and if you have a bad experience with it you probably just chuck it so this is pretty fundamental this testing actually makes the difference between you using something and becoming obviously a paying customer and you're just switching it right off so they're solving a real problem and what's interesting about it is they've done it in a way that was never thought of before which is you know why don't get the users the actual potential customers to be part of the solution and therefore get them doing it in the world that's very innovative so the before and after on this is quite fun so Ron do you want to just take us through that yes so basically you know before the idea was you know in order to really test across different devices and configurations and environments you really had to build a big lab and in order to do that you know obviously startups couldn't do that and that's why we focused on them initially but in addition to that you know because of social because of local aware application because of the fact that you know every time the iPhone 5 gets released a market just grew bigger you couldn't really keep up with the pace of innovation of different devices and different configurations and this is where you know when we look at it today the fact that we have distributed testers which are profiled and rated and actually test the testing team actually fate the type of application that they're actually testing so let's take a very simple example i'm HBO and you know I'm using the HBO GO application in order to watch HBO online and I use it on my Android I use it on my iPhone I use it on my iPad I use it on my gaming device at home this specific application which works only in the US and needs to be tested in the US needs to be tested across different carriers needs to be tested on Wi-Fi and non Wi-Fi it needs to be tested on 200-300 different combinations of Android devices this cannot be done in the lab this cannot be done by an internal testing team this cannot be done in China this cannot be done in India and that's that's really the only way for them to test there's no other way is by using a model like you just so fabulous example inand after you know what's the experience yeah so the you know the revelation for us was that as the device and an OS and carrier and location landscape got more and more diverse that you should make your testing mimic or mirror your user base so if you have users that are predominantly females between the ages of 25 and 39 and they're college educated and they live in the US and these are the devices and OS as you care about your testing team should look like that as well you can ask either of these guys because they grew up in a world of software the the most common response from a QA manager when a bug gets reported from an end-user that snuck through into production is well it worked for us and forever QA managers have been getting beat up by CTOs and CEOs and CFOs and saying why do we invest in all you people you know there's still stuff that's leaking through and we're getting blown up on Twitter and blown up on Facebook and our customer service line is is you know red ringing off the hook why do we invest so much of you and fundamentally what we just what we've revealed is they weren't doing something wrong in the lab it's not that they have bad people or bad processes or bad tools it's that they were missing a step in the process and that is the notion of testing outside the QA lab great so this whole after effect is very real testing in the wild meant you were representing your users for real you got real results real data and therefore really happy customers so thank you guys that's absolute joy yeah absolute joy that's what I was looking for so yeah so on that subject the willingness to pay for it is what we wanted to get onto so we've covered the qualitative evaluation and now let's talk about how do you have evaluated whether somebody's going to pay for it the simple thing I'm going to introduce you is something called the gain pain ratio and I came up with this simply because everybody has a gain that they get from a good product but what most people forget is what is the pain that the customer goes through to adopt your product and it's very real there is there are very few products that don't have some pain associated with being adopted so let's talk about each of these first of all the gain is usually measured very simply in terms of things like revenue or cost savings or time it may be for example people savings as in the case of view test or competitive advantage which is something that comes up in early markets so not to be ignored here is some customers will buy your product simply because they think it's enough of a breakthrough it will make them leapfrog their competition so there are good examples of this in our industry all the time obviously when you can supply for example a carrier a piece of equipment that makes their network ten times faster and therefore their customers experience their service ten times better and you do it at the same price they're going to acquire more customers and that's going to give them competitive advantage versus everybody else they will pay for that that's something that even if it didn't save time or money for them it may have cost them time or money they will pay for so competitive advantage can be very key and then reputation for example could be another example if you're going to enhance their reputation by helping them as for example you know discuss does build a community where their competitor doesn't have that you know that might be something that they aspire to do so that's the gain site that's probably the most obvious site the least the less obvious site is is pain what does it cost customer to implement this in the business world there are real costs associated with any of these kinds of products and solutions so in appearance case if Brian as the CFO could give us an example of it what had it initially cost for a customer before we had our epiphany about going live in five what it initially cost for a customer to go through implementation of appear and how long did it take how many people were involved what was typical cost the rollout process was probably at a minimum two to three weeks because the sitting of the as most companies like like ours we went to market probably a little before the product was really done so the one probably hadn't really finished was how we gonna roll this thing out to customers so it worked when it was when it was installed but the installation was a little messy so as Michaels we came up with a live and five program and and if since it spent a lot of time fixing that but it was it was a very painful implementation and for the first six months of the subscription part of the business it was difficult you know customers loved that loved the concept but they said it's just it's really hard for us to get this thing implemented call us back in six months when you're really ready to do it thank you very much so what happened that was very interesting the team was very responsive and they get you know 11 out of 10 in my book for what they did which is they took what used to take two or three weeks and they figured out an engineer a product that actually could get a customer up and running in five minutes that was the live in five program and the net result of that was that customer conversion rates doubled so the number of customers that started to move through the funnel from evaluation trying the product to buying it doubled and that's what you've really got to think about how easy is it for somebody to find you that's a real issue for startups even just being identified correctly that's a marketing issue how is it for them to try you to buy you to implement to deploy you to roll out and even own you so the last one people often forget I'll just exemplify with the laser printer business so how many people use the laser printer here I would imagine everybody but does anybody have one at home a couple of people do you care about the cost of the laser printer now or do you care a cost about the cost of the toner the toner right that's the cost of ownership of a laser printer it's not the printer you've probably spent more by a factor of some multiple I don't know that's five or ten depending on how long you find your printer on your toner and that's the total cost of ownership that when you think about your product or service your customer is going to evaluate so don't think about just what you charge them upfront think about the experience of what is going to cost them to run it in turns out that could be an opportunity by the way for you to change your business model to if you're really making money on the toner which is by the way exactly what HP and many others do they price those printers way below cost in some instances to get you hooked on their product and that's why they make money as is the cost of the toner so I'm gonna ask that you test guys to again just give us a sense of this you guys obviously have a clear game in fact we probably don't need to go through that in too much detail but can you highlight what the pain was for your customers to adopt this because you were very honest about this uh yeah there is pain involved in the world of software testing when we're doing our job well it's a bad news business and that means we are reporting 40 50 60 bugs on the latest version of your iPhone app or the latest version of your Kindle Fire app or your website and it's not just a clean matter where you know we report the bugs and you say okay you know poof they're fixed we're actually creating work for the CTOs organization there has to be somebody who has to actually go and review these and reproduce these bugs so there's increased overhead not just for the QA department but we're actually creating work for the engineering department now they realize how many things are actually broken in the wild and that's great for users that's lousy for for the phoom ease of the world the second thing that happens is they might be good at managing their five-person QA team they might be good at managing one outsource vendor in Bangalore but in the original iteration of you test you had just inherited 35 testers from 14 different time zones and there was a lot of collaboration that was required between the in-house team and the the crowd based team and so I think we've we've realized that early on and we'd we've taken a lot of steps to decrease that pain the original business plan correct me if I'm wrong Doron didn't include a professional services layer now we actually have a 20-person team that can do work remotely for clients that can actually go on site and is actually a revenue center for us but their job is to make sure that the overhead is what you want it to be some clients actually want to be very involved with the debtors testers other clients don't want anything to do with it they want us to actually gift wrap it and say these are the 12 things that you should fix tomorrow and ultimately our goal that we've come to in the last 12 to 18 months is we need to maximize the in the wild testing that we can do and minimize the incremental overhead it was only when we realized that it wasn't just about maximizing gain it was about minimizing pain that things really started to fall into place for us great perfect example and and thank you very much Matt for being so honest about it most companies won't fess up to the reality of how painful their product is I would encourage you as a startup to spend all your time when you're first getting a product to market asking your customers about why they don't like it not why they do like it why they don't like it what are all the experiences that are a struggle for them if you really get focused on that then you'll be able to figure out how to take that pain down the way Matt's been talking about and reduce the friction and if you come to one of the latest sessions I talked about actually the idea of creating what I call slippery products which really are friction free ways for customers to adopt your product so with that said the last piece that people very rarely even think of is the piece I call inertia so it turns out as a start-up the biggest challenge you have is that you are a risk you're just a risk from the get-go because it's not even sure nobody's ever sure that you're even going to be around so you have inertia to even get into a customer discussion and their default will be to do nothing do nothing might mean do nothing or it might mean as Rick was talking about they'll build their commenting system themselves because if their consider that less of a risk than buying it from a startup even if you've got a great vision so you've got to factor this in and what you got to figure out is what are those alternatives and in particular is there something that's good enough because if there's a good enough solution out there that will be the default that the custom will take rather than bet on a start-up because you're a risk so with that in mind what we want to do is obviously you know ask this question what's the right ratio here anybody got a sense what should be your game pain ratio for a customer to say I'm gonna write it check for you should it be one go ahead ten-to-one why ten to one seems like the game should be significant I mean absolutely you're a new company you're trying to get customers and again gain that momentum it's gotta be significant over the pain and the rest of they they're gonna have to go couldn't have said it better myself it's got to be significantly better than the pain and the risk associated with investing in you which is basically what they're doing and so ten to one is exactly the number we always say it's got to be at least an order of magnitude better in your game pain for a customer to consider your value proposition really worth it so when you get to quantifying this it isn't easy to put it in numbers but again we're lucky enough to have you test here and so I'm gonna call on Toronto to actually share how did they quantify that game pain ratio so you know basically what we did is we looked at you know what's the type of gain that we're providing to the customer so you know from what the customer really care about is basically you know time to market it's the concept they're paying it's the fact that the users are significantly more happy with the application so basically when they download it install it run it they don't delete it immediately because it does something and basically by doing that we ensure that and by reducing the overhead of using our system we may choose that the value proposition of gangue to pain is really significant it's very good and you actually were challenged I think the quantified in the early days what were you first seeing so you know in the first at the beginning I think it was a kind of a one-to-one type of a ratio so you know we were kind of getting the gain of you know it's nice to have we're getting good feedback but you know what you know we need to kind of communicate with those testers and we need to make sure that they you know we keep on tab because they keep nagging us if they reporting something and we didn't give them feedback so I think it took us it's really a cycle of you know iteration of improvement over time in order to make it significantly better so you really need to listen to your customer base you really need to understand the pain that they are feeling and implement now one of the things that you know we did as of day one is we actually used our system ourselves so as of day one from the first release of the product so once we started doing the first cycles of actually developing we've used our testers in order to test our application so we're actually consumer of AI users and we actually used it actually up until today so we're continuously using our product in order to test our product so our testers are testing from the tester perspective and from the customer perspective that gives our engineering team our product in our community team a real gauge of what's the experience for the customer so that's a very important point it's actually a great point I'm a huge believer in this it's you know eating your own cooking and in my case by the way that would be a horrible experience but it's really important to do that because your own internal team will have a whole different appreciation and awareness of what the customer experiences before you expose the customer to it so there are lots of ways people do that you know in the software world it's things like building on your own api's or it's using your own product or service so I really encourage that any other insights you'd want to share before we move on from this one yeah I will mention one thing the early days of you test we were focused mostly on how much money are we saving you and what we saw where I think the next slide will actually get into an ROI sample it was we were you know we were 10x more efficient and one of the things I give Derron and company a lot of credit for is they weren't satisfied with that they didn't want to actually be the cheap solution they wanted to build more of the value proposition on value and so if you go forward one more that entire green section is about incremental value and so we actually look at the the gain as a composite based on cost savings plus the incremental value you're actually adding to their lives and the bottom line on this was that the team actually did go the full distance and prove to the customer that there's an ROI of ten to one here give you an example so this is actually an arrow eyes that we did not do I mean usually we don't get this led of accessibility to data this was actually done by the Google Chrome team I don't Seattle and basically what they did is they compared us over a period of time against traditional on-site outsourcing so this is vendors that actually come on site and are part of the team and basically what they did is if you look on the left hand side they had eight testers basically working for 40 hours a week over a total four week or five days they tested 300 URLs that are being used by Google Chrome's the most popular URLs around the world and they discovered 19 issues that are fixed worthy so 19 issues at the dev team said you know what we're gonna fix that and we're gonna fix it now for the next next release of Google Chrome and basically is the price that they paid is $15,000 but if you look at the price per issue meaning price per issue fixed is 789 dollars they run the same test with us at exactly the same week and we basically use 30 testers each test to spend 10 hours and we finished everything in two days so that's value number one it's time to market we were able to cover more ground and cover it more quickly we tested the 300 URL and we discovered 129 issues that were fixed worthy so not only we did it faster and we discovered by a 10x amount of times the number of issues that they actually deemed to be fixed and if you look at the price comparison it costs them $10,000 but if you look at the value per item fixed it actually was $78 so the real ratio of cost is 10 to 1 so it's time to market its quality and its cost so three things that we were significantly better over the old way of nuit that's excellent what I love about this example is that if you think about all the things that Doron and his team worked through there they weren't all just you know things that you would say were pure benefits and in a dollar sense like time to market is a really big advantage people but may not be measurable in dollar terms but it's meaningful to a company like Google who's trying to compete in a very hot space so do you think about ways that you can bring your game pain ratio into focus and I would summarize by simply saying you need to have at least an order of magnitude improvement in this and the best thing you can do when you're evaluating your value prop is to ask all these questions up front long before you ask for the check and if you're getting the right answers and you're getting that sense that you have an order of magnitude improvement you probably will get the check and that's the reason why I would put this you know long before of the initial go to market exercise becomes a reality of you trying to hire sales people and pay bills so one more example just to sort of keep thus you know moving from case study to case study appear in actually solved a problem for Estee Lauder and I know Brian you weren't the person you actually sold them this particular deal but would you like to just briefly talk through here what the benefits were to Estee ladder and what their game was so actually Estee Lauder was one of the company's first customers and this goes back to the days when the company was actually doing app development work and stay lauder approached a period because what they what they want to do is I don't know if any of you been to any Clinique counters or any other cosmetic counters that are owned by one of the Estee Lauder companies but they now have iPads there and they they have questionnaires and that iPad that are constantly being updated a period developed that that app for them and what happened with that state law it was they said okay that's great but now we need to roll it out to 40,000 kiosks around the world right now it's about it's it's seven there's 17,000 all the way they want to have 40,000 of these kiosk iPads worldwide how are we gonna do that we can't possibly have an IT person go to each one of these upload a new app every week or every season and whatever I knew when a product line or our new SKU comes out so we developed a system to enable enable us to push these app updates out to these these kiosk iPad iPod i pads that Estee Lauder has it there at the various facilities their alternative obviously was to do it themselves which would have been a huge effort they estimated about two and a half million dollars what would it cost to do that and I kept the punchline to lust which is unfair because you should get the benefit of it which is that the sales went up by how much the the the initial test from the some of the stores in New York this I mean the sales went up like four hundred percent right off the bat and the reason if you think about it was this it was people walk into stores and they have you know the you you want somebody walking up to your saying you need this product or this product you don't really want that but people tended to trust the information coming out of the of the iPad so they would enter their skin type program buy it buy probably the same person that's spraying perfume on your face but what would happen is people would enter in their skin type and what they plan on doing and in the iPad would spit out here's what you need and by the way here are the product numbers and you could just go grab them and buy them so that I mean that the take-up was unbelievable it has been to this day so thank you I mean it's a great example again if the game paint obviously an order of magnitude but then the fact that the sales went up 4x no-brainer so this is the reason why this stuff becomes so important for you to evaluate now my next startup secret is a little hard to get your arms around so I'm going to use David to bring it up but I will first of all give you a sense of what I'm getting out here almost everything I've told you is going to in some way be a breakthrough if you do a great job of it breakthroughs by definition have the word break in them so they break stuff that is a challenge if you're breaking stuff it usually costs people to go break it and fix it and put it back together again even if what you come up with is a much better solution so the really great innovations or great value props are actually great breakthroughs in terms of their output but they are non disruptive to actually adopt and so what we loved about keepin was that we've looked at many many different database companies you know literally in the sort of 40 or 50 companies but almost all of them had a simple basic premise which is you've got to rewrite your application to take advantage of it this is not going to happen I mean people have invested billions not an exaggeration in IT systems written around a standard called sequel and so they're just not gonna rip that out even if you can come in with an order of magnitude improvement as we were suggesting at it so David what was your way of solving this problem so mm-hmm what we did attic even again we had this incredibly disruptive innovation in that you could basically solve the performance issues for most databases running those queries hundreds of times faster and actually do things that you couldn't do before and that was great but the issue was is how do you adopt it and so what we came up with is a concept of what's called replication instead of you having to rewrite your application we just plug in alongside your existing database and then you redirect the problem queries over to a Kievan in doing that you don't have to react attacked you don't have to rewrite any part of your application to do that it's literally a seamless process there's another key element to it which is actually fitting into the operational environment these are 24/7 operations they can't go down they have very very rigorous rules and the guys who run those as system admins and the DBAs follow very very precise procedures so it's very important that we could just slot in alongside the existing operating environment to allow you to not just achieve this in the first place but then to run it seamlessly so there's a beauty of this that falls out in David's value proposition which is you know as you can tell he has a way of talking about this that is you know a much improved 10 to 100x performance but the unlike statement at the bottom is unlike some alternatives that are now called no sequel which literally don't use sequel would require a rewrite he can do all of this without you doing that rewrite so in his value prop statement that unlike was really the key it was the thing that enabled him to have a very disruptive innovation yet a non-disruptive adoption it took all the pain of adoption out and took all the risk out in that case to because actually could just evaluate it on the fly alongside what you're doing today and see you hey is this making an impact or not and if it didn't guess what you wouldn't invest but the good news is we're seeing not just 10 but 100x performance increases in some customers and so David I'd love you to just give the name Media example of what's the impact being for them in in business terms I'll give two real quick examples so when his name Media surname media is another relatively local company they handle all of the domain name sales so when you go to one-on-one or GoDaddy to buy a domain name they're actually buying that through this wholesale service in a media and they had big problems in terms of the performance of their website performance really means money what they've been able to show is that by eliminating their performance they've been able to drive up revenue 200% on those applications so it's a big big revenue impact another very quick example is Citrix Citrix has a collaboration platform that they're just bringing to market their problem was is that they needed to be able to provide greatest security for that to allow it to go viral and they just simply couldn't get the performance so with a keep and again we've been running 42% of all of these queries now with these security queries are 40 100 times faster and so we just eliminate the problem and so it means that you can take that entire platform out to market as a viral product so it's a big go-to market boom what's beautiful about the examples in achievements you know customer bases there's no change to applications there's no risk and deployment and yet you're getting this you know game pain ratio of 10 to 100 so we've really got through the two tough parts and at this point I'm going to finish by just describing to you a couple of examples of how you might go about building your value prop as you sit down now to do it so again I think you've now seen this template enough to realize it's pretty straightforward it's about who you target what you're currently competing with and what you do differently and how it is that you do that in a way that ultimately makes it unique and valuable so when I was just putting this together last time that I was here I had somebody come up and challenge me and say okay that all sounds great but what if I'm a not-for-profit and so I promise to give an answer to that so this is an extension to the the case studies and I'd like a look to come up who's going to talk to us about Diagnostics for all so a loke can you tell us a little bit about what Diagnostics for all is all about using the value prop statement here yeah sure so just background I'm a scientist over across the river in the chemistry department and George Whitesides lab and so about I think about three years ago George and some scientists there developed the technology that enables you in a very low-cost and simple and elegant manner to diagnose a variety of diseases for and from people to animals to testing the quality of milk using paper and so basically this approach was sort of being brought to market if you will through a nonprofit called Diagnostics for all an essentially designed for people in the in the third-world in the developing world essentially people who live in rural environments who don't have access to a conventional medical infrastructure and so generally you know I think this sort of juxtaposes with press on the other examples where there may be some solutions that are already out there that they might be expensive in this case it really are no opportunities for someone in the third world in a farm you know in in Ghana or Gambia for example to get access to a diagnosis to understand you know what's wrong with them why they're ill and so basically I guess it's for people in those sorts of environments who decide dissatisfied with the fact that they don't have access to diagnose Diagnostics or diagnosis and the technology that they're using essentially patterned paper that enables them to test a myriad of diseases all in within a few minutes and so this again is a low costs about cost about a penny in that scale easy to use it's also another important point you know unlike the US where we have a lot of training and physicians and nurses and staff behind testing diseases and they don't have that and the alternative would have been what no diagnosis base exactly no diagnosis and so I think one of the real comparisons in the game pain ratio for example is the fact that in this case unlike a big company that might have to pay more in this case pain is actually real pain where they're not able to get treatment or understanding of their illness so just to give you one example DFA did a quick study or look I guess the NIH in Rwanda did a study where about 53% of women in Rwanda could not afford healthcare and about 26 percent of them live too far away from the hospital in order to get access to diagnostics and treatments and so what DFA has been doing is on the right-hand side you can see this really small piece of paper costs about a penny two pennies now if you include the reagents that's a point of device enables them to test for a whole bunch of enzymes and diseases right on that piece of paper so I think that one example is for liver failure so how many people here have over gone out drinking really hard one night nobody's going to admit that Sid admits it yeah but you know the reason you're still alive after doing that is because your liver removes all the impurities and all the toxic agents out of your blood now it turns out that for a lot of folks in third-world who are taking medicines a lot of the medicines also can destroy the liver so we need to be able to constantly monitor and assess the health and the state of their liver and so this test looks for two enzymes alt and ast to assess the quality and the health of a liver great it's a great story I look and and I hope you can all appreciate this is one where there's real pain you know medical pain and and also you know third-world pain and it feels frankly like a cause that any of us could get behind where there's really no current solution and such a large problem and at a scale where you know existing infrastructure just wouldn't support it so the beauty of this is no infrastructure no training and really no time requirement to bring it sorry go ahead yep can ask a question that mystery what I think is different is who so part of the challenge I think is convincing someone who's not experiencing that difficulty of implementing it that it's a worthwhile solution to the people who are so how do you address that disconnect between who pays for the services and benefits yeah that's a really great point and I think one of the reasons is a sort of a whitespace area is because you're right you know the people who experience the pain don't have the money to physically afford a lot of those solutions so to address your point I'd say there's there's two elements to it one is that a lot of governments are getting very heavily involved but wanting government the Indian government the Chinese government are all trying to develop these low-cost technologies because they can't afford you know a million dollar MRI so that's one reason I think there's a lot of incentive for them because they want our people to be healthy and they want productivity and is also dependent on the health of their their citizens that's one thing DFA I think has been very fortunate I think a lot of this technology was developed here at Harvard through the generosity of Bill and Melinda Gates Foundation and they've been a very strong proponent of this technology and are actually working on a fuel test right now I think that might be the next slide perfect - yup so a DFA is actually right now for the same liver function that I mentioned before they're actually deploying that technology now as a field test in Vietnam and so this liver function issue affects approximately eight million people according to the foundation globally in these sorts of environments so they have a 700 person test they're doing at a hospital in Ho Chi Minh so thank you very much Alok I think was a great job of bringing something to life there that is very different to all the examples we talked about and hopefully responded to some of the feedback I got in the last session that we obviously wanted to address that so the last thing I want to do here is just to say that actually all of this is great on paper or on PowerPoint but it's really nothing to do with the technology at the end of the day it's to do with you and what I mean by that is that the best value propositions get developed by people who are uniquely able from their background or their experience to come up with some insight that advantages them in addressing the problem and providing a solution which they are passionate about and that ultimately they believe in for their reasons they can deliver in a disc discontinuous innovation or in some kind of a disruptive business model so what I want to do at this point is just appeal to you all and say look every one of you probably is here for a reason and no matter what I've said tonight believe in yourself because I've seen incredibly unlikely stories turn into great companies because of the entrepreneurs conviction in their own understanding of a problem if you have that and you have the belief and you have the passion and persistence to go after it everything I've said tonight will just be a framework that will drop away into the distance as you succeed in building your business so thank you very much for your time tonight I really appreciate it I just wanted to end by thanking the team from appear Ian and Akiba and discussed in form of Rick from a low-crime DFA and of course the uTest group so thank you very much you guys [Applause] [Music] you [Music]

Channel: Harvard Innovation Labs

Views: 83,167

Rating: 4.8853869 out of 5

Keywords: harvard i-lab, harvard innovation lab, michael skok, startup secrets, north bridge venture partners, value proposition

Id: EYJeGYboPnw

Length: 90min 51sec (5451 seconds)

Published: Wed Nov 07 2012